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When Will ISP Data Caps Cost Consumers More Money?

It will happen if you decide to cut the cord, at least with one major cable provider.

Comcast(NASDAQ:CMCSA), in becoming the first major cable company to enforce data caps, isn't doing so for its bottom line today. Instead, it's starting the practice when it won't affect most customers to put them in place for the future.

People won't protest an injustice being done to them if it has no negative impact. Only a very small percentage of the cable company's users will exceed its caps, and Comcast hasn't charged for overages for all but the most grievous offenders. This approach should let the company implement the caps with very little uproar.

Of course, that outrage will come. It just won't happen until people either ramp up their streaming use in addition to their cable consumption, or until they cut the cord. When that happens -- specifically, if people drop cable in favor of using streaming services -- subscribers will begin regularly going over.

When that happens, Comcast (and any other big cable companies that follow suit) will be able to say it has had the caps in place for months, even years, and has even overlooked some overages. It will only go through with charging, the company can say, when people repeatedly go over.

Of course, that will happen if consumers cut the cord or opt against cable in the first place. That may be great for Comcast, but it has one rival service's CEO calling foul.

Comcast CEO Brian Roberts. Source: Comcast.

Which company is angry?Roger Lynch, the CEO of DISH Network's Sling TV streaming service, has charged that Comcast sets its data cap limit specifically so cable subscribers would be under it but cord cutters would go over it. The cable giant has been testing a 300GB cap in some markets, charging users $10 for every extra 50GB they use or offering more expensive plans with more, or even unlimited, data.

Lynch believes the cap specifically targets his company, which offers a "skinny" streaming bundle of live television. Designed as a cable alternative for cord cutters, Sling starts at $20 per month for 20 live-streaming channels, including ESPN, TBS, TNT, and a number of other cable favorites.

"We see concerning things happening if you look at cable companies like Comcast now instituting data caps that just happen to be at a level at or below what someone would use if they're watching TV on the Internet -- and at the same time launching their own streaming service that they say doesn't count against the data cap," he told CordCutting.com. "It's something we've been warning Washington about for years, and it's a risk to OTT in general."

Whyare capsgood for Comcast and big cable?Currently, only about 8% of Comcast users exceed the 300GB data cap, according to The Chicago Tribune. The company, of course, has attempted to sell its cap tests as a positive for consumers.

"These trials are based on a principle of fairness that gives those who want to use more the ability to pay more to do that," Comcast spokesman Charlie Douglas told the paper.

That argument might make sense if the company had capacity issues -- and it has admitted in the past that it doesn't -- or if hadn't previously offered unlimited data. This is a case of a company trying to put a good public face on taking something back from consumers.

Comcast has even taught its customer-service representatives to not use the words "data cap" and tell people it's all about fairness, according to leaked scripts Ars Technica obtained. Instead, the company wants its reps to call it a "data usage plan" and say that it's about "fairness and providing a more flexible policy for our customers."

That's pure marketing nonsense meant to distract from what's actually happening. Comcast knows it's going to lose cable customers, and it needs a hedge on those losses. Charging more for Internet use over a certain limit (be careful not to say "cap") is a way to make back the money lost from cord cutters.

This is not subtle, and it won't workIn the wireless industry, overages were always a part of the game, and consumers couldn't avoid them unless they purchased unlimited plans (which only some carriers offered) or bought more data than they probably needed to avoid going over. That has been a major industry revenue driver, and Comcast wants a piece of that lucrative pie, as its hold on pay-television customers becomes even more tenuous.

In markets where Comcast is the only choice, this is really bad news for consumers who want to cut the cord. They might not be getting charged yet for exceeding the cap, but they will, and that makes cord cutting a less viable option -- which is what the cable giant wants. The problem for the company is that it's not a monopoly. It faces competition for the telephone companies and from emerging players entering the space.

And, just as T-Mobile won customers by dropping overages in the wireless space, forcing changes in the whole industry, similar options will emerge from ISPs. It's easy to see why Comcast wants caps to happen, and its semi-clever, semi-villainous way of implementing them is fairly obvious, but it's only a short-term solution.

Consumers will put up with data caps and overage charges for exactly as long as they have to. Where other options exist, people will take them, and consumer-unfriendly policies will lead to the creation of options.

It may be a bumpy transition with periods where many consumers have little choice, but for Comcast, this is just pushing off the inevitable rather than evolving into a company people actually want to, rather than have to, use.

Daniel Kline has no position in any stocks mentioned. He never feels like a nut and always prefers Mounds to Almond Joy. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Author

Daniel B. Kline is an accomplished writer and editor who has worked for Microsoft on its Finance app and The Boston Globe, where he wrote for the paper and ran the Boston.com business desk. His latest book, "Worst Ideas Ever," (Skyhorse) can be purchased at bookstores everywhere.
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